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Helicopter watch..PMIs

We do not need a global recession or a financial shock to precipitate a “Helicopter Money” operation, all we need is slow to anaemic growth given a heavily indebted economic and financial system challenged by demographics, productivity growth constraints, structural imbalances and increasing inequalities. Anaemic to weak growth will itself precipitate a crisis.

Today’s global PMI reports suggest that manufacturing growth globally remains constrained by weak/weakening export demand and that such demand growth that there is remains dependent on domestic demand conditions. All cycles are punctuated by dips and rebounds but the relationship between the dip and the rebound and the strength of the latter provides clues as to the ultimate strength and direction of the cycle. Today’s rebounds are lacklustre and this is cause for concern:

Japan: “lowest for over three years”,”New orders…contraction was the sharpest in nearly two years”, “sharp drop in international demand”, “instability in the wider Asian economy”, “client negotiations and competition driving down selling prices”;

South Korea: “contracted for the third consecutive month in February”,”rate of decline was only marginal overall”, “slump in demand and challenging economic conditions”, “new orders stabilised….followed two months of contraction”, “increased competition and an unstable global economy”, “international demand declined for the second successive month”, “goods producers cut back on their staffing levels”, “increased competition encouraged companies to reduce their selling prices.“

“the overall pace of expansion remained subdued..At 51.5, up only slightly from 51.3…the headline PMI pointed to the weakest quarterly upturn since Q3 2012…faster increase in incoming new work and sustained growth of employment numbers were the main positive developments…stabilization in new export orders….generally improving global economic conditions…..output growth remained below its post crisis trend…production volumes was linked to subdued client spending patterns….backlogs of work were reported to have fallen again in March….cautious inventory policies….uncertainty about the business outlook….a sustained decrease in average cost burdens across the manufacturing sector…..competitive pricing strategies and lower input costs. “

Despite the slight uptick in the reading this represented “the second-weakest improvement in manufacturing conditions for just over a year.”

“Rates of expansion in manufacturing production and new business ticked higher in March, recouping some of the momentum lost in the prior month. New export order growth slowed to a 14-month low.”

“weakness was largely centred on the ‘core’ countries of France and Germany. The German PMI continued to hover only marginally above the stagnation mark, while France slipped back into contraction. Both of the ‘big-two’ nations saw disappointing export trends. New export orders received in Germany were broadly unchanged. France registered a marginal decrease, exacerbating the already-weak domestic demand situation”

“The reduction in selling prices was the steepest in over six years. There were widespread reports of price competition between companies in response to weak demand”

“Eurozone manufacturing employment increased for the nineteenth successive month in March. However, the rate of jobs growth was among the slowest registered during that sequence. “

Chris Williamson, Chief Economist at Markit said: “The data suggest manufacturing grew by only around 0.2% in the first quarter, acting as a drag on the wider economy…Policymakers will also be worried by the further intensification of deflationary pressures in manufacturing supply chains, with prices charged at the factory gate falling at the steepest rate since late-2009. Discounting was widespread as firms competed on price amid weak demand “Deflationary pressures are especially evident in the ‘core’, with prices falling sharply as Germany more or less stagnated for a second successive month and France slipped back into decline for the first time since last August. Both also bucked the wider hiring trend by reporting net job losses. “Both Germany and France also saw especially disappointing export trends, exacerbating weak domestic demand in the case of France. “Pockets of brighter light persisted outside of the core. With the exception of Greece, which remained in decline, most other countries surveyed — including Spain, Italy, the Netherlands and Austria — saw robust rates of growth. However, it was Ireland, where the economy continues to boom, which topped the growth rankings on the back of rising domestic and export sales.”

“ The opening quarter of 2016 saw the UK manufacturing sector register one of its weakest performances during the past three years….“March saw production rise at a pace unchanged from February’s seven-month low.”

“Levels of new export business decreased for the third straight month in March. The latest decline was centred on the investment goods sector, as consumer and intermediate goods producers both reported modest gains. “

“Manufacturing employment declined for the third consecutive month in March. Reflecting the trend in new business, the sharpest job cuts were initiated in the investment goods sector”

Rob Dobson, Senior Economist at survey compilers Markit: “The UK manufacturing sector remained in the doldrums during the opening quarter of the year. ….industry is still hovering close to the stagnation mark and will struggle to make a meaningful contribution to the next set of GDP growth figures…The domestic market remains the main source of new contract wins for UK manufacturers…”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “Operating in evidently challenging global economic conditions, respondents reported poor levels of new orders from home and abroad, as customers hesitated to ramp up demand and purchasing activity remained near stagnation. Backlogs…have now fallen for 25 months, with March’s fall the sharpest during that sequence. Also stocks of raw materials were reduced at the fastest pace for 34 months as businesses held on to hard-won margins amidst a more competitive marketplace.”

“Russian factories are currently in the midst of a worsening downturn, according to March PMI data. …Demand conditions returned to a state of deterioration, as incoming new orders from both domestic and international markets contracted. …….If the current sluggish market environment continues over the next few months, firms will be looking to the Bank of Russia to provide some stimulus in order to revive the underperforming economy”

Above 50 for the first time Since September 2014: “output emerged from its prolonged slump in March, posting the first rise for one-and-a-half years. Production was boosted by improved domestic demand, which more than offset another fall in export business.“

Production and overall new business rose…Higher production contributed to a moderate expansion of purchasing activity…client demand was relatively subdued, firms maintained cautious inventory policies, with stocks of both finished and production inputs falling again in March….manufacturers raised their staff numbers only slightly…prices data pointed to renewed pressure on operating margins as input costs rose and output charges continued to decline. At 51.1 in March…up from 49.4 in February…the latest improvement was only marginal and slower than the series average. ….Data indicated that improved domestic demand was the principal factor driving new order growth, as new export work declined for the third month in a row.

““The PMI pointed to a modest rebound in Taiwan’s manufacturing sector, with output and new business both rising in March and offsetting declines in February. “However, client demand remains relatively lacklustre, as overall new work rose only moderately. Furthermore, the data highlighted that weak external demand continued to be a drag on growth. New export business fell for the third month in a row as a number of firms reported weak client demand across a number of key export markets. “Soft demand conditions were also highlighted by the fact that companies continued to discount their selling prices in order to secure new work. Unless global economic conditions start to improve and demand picks up, it is uncertain whether Taiwan’s manufacturing sector can sustain the current upturn in growth momentum into the second quarter.” “

“….the rate of job creation easing to a six-month low….input prices declined at a quicker rate enabling firms to reduce their selling prices further…..the latest reading was the lowest for over three years. New orders at Japanese manufacturers decreased for the second month in a row….rate of contraction was the sharpest in nearly two years….the primarily contributor to the decline in total new work intakes was a sharp drop in international demand, as new export orders decreased at the fastest rate since January 2013. A number of the survey panel blamed instability in the wider Asian economy……production contracted for the first time since April 2015……..Firms also mentioned client negotiations and competition driving down selling prices”

“March survey data pointed to only a fractional deterioration in operating conditions faced by Chinese manufacturers…renewed expansion in total new order books led to the first increase in output for a year….firms continued to cut their staff numbers, with the rate of job shedding easing only slightly from February’s seven-year record. Companies also maintained relatively cautious stock policies, with inventories of inputs and finished goods both falling again in March.…The seasonally adjusted Purchasing Managers’ Index™ (PMI™) registered 49.7 at the end of the first quarter, up from 48.0 in February….the highest index reading in 13 months…Some companies commented on an improvement in underlying client demand. Weak foreign demand remained a drag on new order growth, however, with new export business falling for the fourth month in a row….”

“….The headline PMI posted at 49.5 in March, up from 48.7 in February…Production…contracted for the third consecutive month in February…rate of decline was only marginal overall…Where output decreased, panellists mentioned a slump in demand and challenging economic conditions. Meanwhile, total new orders stabilised in March….followed two months of contraction….Firms that recorded a decline in new work intakes mentioned increased competition and an unstable global economy. …international demand declined for the second successive month in March. ….goods producers cut back on their staffing levels in March….rate of job shedding was only fractional. …..higher imported raw material costs led to greater cost burdens…..charges continued to decline, as pressure from clients and increased competition encouraged companies to reduce their selling prices. “